Fitch Rates Salina USD No. 305, (KS) GO Bonds 'AA'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns the following rating for Salina Unified School
District No. 305, Kansas' (the district) general obligation (GO)
unlimited tax bonds:

--$117.3 million GO refunding and improvement bonds, series 2014 'AA'.

The bonds are scheduled for negotiated sale during the week of May 19.
Proceeds from the sale of the bonds will be used to fund significant
capital improvements at district facilities and refund a portion of the
district's outstanding ULT debt for debt service savings.

The Rating Outlook is Stable.

SECURITY

The bonds are direct obligations of the district and are secured by its
unlimited ad valorem tax pledge.

KEY RATING DRIVERS

STRONG FINANCIAL PROFILE: The district's financial profile is a positive
credit factor characterized by large reserve levels, and a consistent
record of conservative budgeting practices.

STABLE AND DIVERSE ECONOMY: The regional economy is anchored in diverse
manufacturing, retail and agriculture which continue to demonstrate low
unemployment. Slightly below average income levels are growing faster
than state and national averages.

STABLE ENROLLMENT, HIGH RELIANCE ON STATE FUNDING: District population
is expected to continue to grow at a modest, manageable rate, while
enrollment appears to have stabilized after mild declines. Enrollment
stability and very modest growth would temper budgetary risks posed by
high reliance on enrollment-based state funding for operations.

ELEVATED DEBT BURDEN: The district's overall debt levels are high,
although this sizable new money issuance is expected to meet the
district's capital needs for the next decade and beyond. The district
has no pension or post-employment benefit obligations. Fitch believes
the debt load is manageable due to the district's moderate carrying
costs and favorable economic prospects.

RATING SENSITIVITIES

SHIFT IN FUNDAMENTALS: The rating is sensitive to shifts in fundamental
credit characteristics including the district's healthy financial
profile. Maintenance of solid reserves and economic stability are key
credit consideration.

CREDIT PROFILE

The district, while fairly small, is the tenth largest school district
in the state. K-12 enrollment of 7,305 for 2014 is down from a peak of
7,431 in 2010. The district is located in central Kansas, approximately
175 miles west of Kansas City and 90 miles north of Wichita and
encompasses 93 square miles including the City of Salina. The area
benefits from excellent interstate access and has developed as a
regional trade center with manufacturing and distribution. District
population growth has been positive over the past decade at just under
50,000 in 2013 growing at a rate slightly slower than state and national
averages.

SOLID FINANCIAL RESERVES MAINTAINED

Annual positive general fund operating margins have resulted in the
accumulation of solid overall reserves despite the challenges posed by
state imposed limitations which preclude the district from carrying
reserves within the general fund. Conservative budgeting of enrollment
coupled with close expenditure management has enabled the district to
maintain surplus general fund operating margins. Annual year-end
surpluses have been transferred to various other funds including
contingency, capital outlay and special education.

The collective amount of these funds has consistently been well over 10%
and provides significant liquidity and cushion against potential state
funding changes. Cash balances at July 1, 2013 in the contingency and
special education reserves totaled $8.1 million or 21% of the district's
$43.6 million budget. The sizable reserves somewhat mitigate the
district's weak financial reporting method and high dependence on state
funding, over 70% for 2013. The district reports on a modified accrual,
regulatory basis of accounting which is not compliant with GASB
standards. Fitch expects stable enrollment trends and conservative
budgeting will enable the district to maintain continued sizable
reserves.

The district levies local taxes at 30% of general fund expenditures for
its annual local option budget (the maximum without voter approval) and
six (of eight maximum) mills for capital outlay. Instructional salaries
and benefits are the primary expenditures which the district has been
able to successfully manage given modest recent enrollment declines. The
district is self-insured for healthcare and consistently maintains an
actuarially determined reserve of around $10 million.

MODERATE DEBT BURDEN

The district's overall debt profile is mixed but overall moderate. Net
debt is high at 7.2% of fiscal 2014 market value and $4,449 per capita.
Amortization is about average at 44% in ten years, no expected
additional debt. Carrying charges are low at 7% in 2015. These amounts
do not include any state funding of district debt.

In April 2014 district voters strongly approved $110 million of new GO
debt to fund significant district facility renovations including $75
million for the two high schools, additional classrooms for full-day
kindergarten programs, safety and security and other improvements. Under
state school funding formula, the district expects state aid to cover
approximately 29% of annual debt service. The state funding amounts are
subject to legislative change but existing funding rates for outstanding
debt have been historically maintained.

These renovations are expected to satisfy the district's capital needs
for the next decade and beyond which, coupled with a lack of
post-employment benefits obligations, will keep district carrying costs
low. District pension liabilities are limited to its participation in
the state pension plan administered by the Kansas Public Employees
Retirement System (KPRS). The state currently makes all employer
contributions on behalf of the district. However, given KPERS plan
funding rate and ratios remain low, district budgets are susceptible to
future funding changes by the state.

STABLE ENROLLMENT AND TAX BASE

The Salina regional economy proved very resilient during the recent
economic downturn largely based on its diverse manufacturing and
distribution oriented economy. Population and enrollment trends have
been overall flat over the past decade and are expected to be very
modestly positive.

The district's tax base has been flat since 2008 with improved building
permit activity in 2013 and 2014 expected to generate modest growth. The
tax base is a moderate $62,000 per capita, and grew 0.2% over the
previous year. Leading taxpayers are diverse with the top ten comprising
under 10% of taxable value and include several utilities, a large food
preparation/distribution facility, a hospital and several retail stores.
Leading local employers include manufacturing, healthcare and retail
firms.

City and county unemployment rates remained well below state and
national averages through the recent downturn with city at 5.3% in
February 2014, below the state (5.5%) and US (6.7%). Wealth and income
levels (per capita money income) of the district population are notably
lower than the state (at 90%) and nation (86%) but have been growing at
a rate twice as fast as both.

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